The Blubber

In January, total home sales reached 4.7 million—just slightly higher than the sluggish pace seen during the aftermath of the Great Recession from 2008 to 2010, according to a recent research note from Wells Fargo economists. That figure, which includes both new and existing home sales, remains well below the pre-pandemic average of around 6 million, and even further from the elevated levels seen during the pandemic housing boom.

While today’s economy looks very different from the financial crisis, there are specific dynamics in the housing market that help explain this sluggish performance. Home prices surged during the pandemic, and mortgage rates began climbing once the Federal Reserve started raising interest rates to bring inflation under control. That mix of high prices and high borrowing costs has weakened demand, making home purchases unaffordable for many. At the same time, current homeowners—many of whom either locked in ultra-low mortgage rates during the pandemic or own their homes outright—aren’t selling. This “lock-in effect” worsens an already significant housing shortage caused by decades of underbuilding.

“The slow pace of home sales isn’t the result of a recession,” the Wells Fargo economists noted. “The primary issue holding back the housing market continues to be poor affordability. Mortgage rates are still high, and home prices haven’t stopped rising.”

Although home price growth has cooled from the double-digit surges seen during the pandemic, prices remain elevated, and mortgage rates, while lower than their peak, are still high. Since February 2020, home prices have jumped 45%, while the average 30-year fixed mortgage rate now stands at 6.67%—more than double the 3% rate recorded just before the pandemic. The country also remains short nearly 4 million homes.

“An improvement in affordability appears unlikely in the near term,” Wells Fargo senior economist Charlie Dougherty told Fortune via email. “With mortgage rates still elevated and the structural housing shortage pushing prices higher, affordability will stay out of reach for many buyers. As a result, home sales are expected to remain subdued and close to the low levels last seen following the financial crisis.”